38103's revenue management answer is right to a point; it explains the situation until COMPETITION enters the picture. Then competition impacts the revenue management math.
Simple explanation: Southwest Airline competes with Delta Nashville to Austin – so rates are lower from Nashville-Austin in order to compete. But there is no Southwest to compete with to or from Memphis, hence the higher prices.
This is a perfect example of "market-based pricing" – i.e., what the market will bear – as opposed to "cost-based pricing" – i.e., pricing based on the underlying cost structure. It's just easier to "see" (or at least imagine) the underlying cost here. Revenue management is COST BASED until competition enters the picture.
1) Southwest in Memphis. The more routes they serve, the lower Delta fares will be on those routes.
2) Re-regulate the airline industry. (Good luck with that one.)
I don't like it any more than the rest of you: just building on 38103's accurate explanation of what's happening here.
By Chris Davis, Susan Ellis, Toby Sells, and Maya Smith
download this issue
click here to see more »